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Should You Start Mining BitCoin Now?

If you are keeping up with technology or financial news recently, you might already noticed something called “BitCoin” is making a lot of noise recently. They started showing up in major news source such as Time, Forbes, Wired, etc.

BitCoin is a virtual currency, which can be created (or mined), transferred (through P2P network to anywhere in the world) and traded (at mtgox.com). It has its own unit called Satoshi, which is named after the pseudonymous person or group of people Satoshi Nakamoto who invented the BitCoin. BitCoin price has been skyrocketed to $256 and going through roller coaster recently. People seem to start seeing it as a hedge for other currency such as EURO, or real gold.

One of the interesting feature of the BitCoin is that you can actually “mine” it (just like gold). The mining of BitCoin involves solving some math problem in cryptography (hash function) in computing machines. The intrinsic value of the amount of work you perform in mining transfers to the value of the BitCoin you got in return.

Based on this Bloomberg article, the BitCoin mining is still a lucrative business (360% return on the energy cost, not bad at all).

Blockchain.info, a site that tracks data on Bitcoin mining, estimates that in just the last 24 hours, miners used about $147,000 of electricity just to run their hardware, assuming an average price of 15 cents per kilowatt hour (a little higher than the U.S. average, lower than some high cost areas like California). That, of course, is in addition to the money devoted to buying and building the mining rigs. The site estimates the profits from the day of mining at about $681,000, based on the current value of Bitcoins. So mining, at least for the moment, is a lucrative business.

The BitCoin mining software is open to public so that everybody has some computing machine can mine his own BitCoin. Actually, there has been lots of development with all kinds of computing device for miners. To get some basic understanding of the mining process, you can check out this website.

It is making good money and everybody can get started, should I jump in to mine some BitCoins?

You might ask youself this question. My answer is “it depends”.

First of all, the supply side.

BitCoin system is setup such that the number of BitCoins can be mined are limited, every 10 minutes there is only 1 BitCoin can be generated. So the grand total is 144 Satoshi per day. That basically limit the money you could make by mining.

Second, COMPETITION.

For the early miners, PC is enough to generate some decent amount of coins for you. As more and more people jumping in, the amount of work required for a BitCoin also increases (measured by number of hash functions). Now you have to use much more computation intensive devices such as GPU, FPGA and even ASIC to be able to stay ahead of the game. Read this article and this forum for a comparison of different hardware platforms.

Based on this Wired article, even miner with the greatest ASIC mining machine feel the pressure of the on-going arm race.

One miner said that he was generating more than 15 Bitcoins per day with a 67-Gigahash-per-second Avalon rig he set up in late January. As of this week, his daily production had dropped to 4 Bitcoins.